Peak oil

Peak oil is the point where further expansion of global oil production become impossible because new production is fully offset by declining production from existing sources. Beyond this point the world will face shrinking supplies of increasing expensive oil. This is not a new concept. What is new is that the experts are saying peak oil is imminent.

The International Energy Agency (IEA) has been dismissive of the concept of peak oil for many years, but in its 2006 World Energy Outlook, it concluded : Non-OPEC oil production will peak within a few years, and then the world’s ability to match growing demand with supply will depend on three countries lifting their production significantly: Saudi Arabia, Iran and Iraq. The IEA does not seem to think they can do it. According to the former IEA Secretary General, Claude Mandl, the world is on an energy path ‘doomed to failure’. In July 2007, the IEA predicted an oil crunch by 2012. ‘Oil looks extremely tight in five years time’, said the IEA’s Mid-Term Market Report, which predicted ‘prospects of even tighter natural gas markets at the turn of the decade’.

During 2007, the chief executives of two major oil companies, Total and Conoco-Phillips, concurred. Global production sits at around 85 million barrels a day, but the IEA says it needs to reach 116 million by 2030 if projected demand is to be met. Total’s Chief Executive, Christophe de Margerie, believes that production is unlikely to rise above 100 million barrels a day. ‘A hundred million is now in my view an optimistic case,’ he said. ‘It is not my view: it is the industry view, or the view of those who like to speak clearly, honestly, and not… just try to please people. We have been, all of us, too optimistic about the geology.’

Another man with an opinion worth considering is Sadad al-Husseini, who supervised the largest reserves in the world as Saudi Aramco’s Head of Exploration and Production until 2004. In December 2007 he told a conference in London that the peak of global production is already here. ‘We are already three years into level production’, he said. He believes the level of production can be held up for a long time, but at the 2007 annual conference of the Association for the Study of Peak Oil and Gas, a succession of industry insiders voiced their concerns that a peak is imminent. Predictions fell in the range from the present to around 2015.

Petroleum Review, a flagship oil-industry journal, regularly charts all the major oilfield projects. Its sums show that new oil coming on stream from the ‘megaprojects’ will drop significantly in 2011, to well below the rate at which existing reserves are falling, as oil is extracted. This assumes there are no more time slippages in the major projects. The industry had better find some new oil fast, because 2011 is just three years from now. But here is the problem. The average time from discovery of an oilfield to production is more than six years. If global production flattens off on a plateau that will be bad enough for our oil addicted global economy. But if there is a rapid decline after a peak, as has happened in many individual countries like the USA, then we have a massive problem on our hands. Nearly a quarter of the world’s oil is pumped from the 20 biggest fields in the world, and most of these were discovered decades ago. The average age of all producing fields today is around 36 years. Production in several of the top 20 is falling fast.

Rapid decline rates can be seen not just in individual giant fields but in ‘provinces’: the official term for groups of oilfields set in one continuous regional geological structure. The North Sea was the last oil province to be discovered, back in the 1960s, and production peaked there in 1999. Since then the rate of production decline has surprised the industry. It was seven per cent last year, and production continues to fall fast despite rising investment to increase production rates.

If you don’t believe all this evidence, just consider what actions the oil companies are taking to meet demand for oil. They are digging solid oil out of the Canadian tar sands, and converting that to oil. It has been described as comparable with getting the chocolate out of a chocolate cookie. Oil companies are investigating ways to extract oil from the Wyoming shales – but they have to cook the shales to 370ºC first. These are acts of desperation.

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